It is May 30th, 2022 and you are the Vice President in charge of risk management...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
It is May 30th, 2022 and you are the Vice President in charge of risk management for Beasties Fund Inc., a funds management company that promises 'beast' like profits (that means BIG!). One of your active funds, in Information Technology, has been performing extremely well throughout the year, starting at $500m and is now worth $600m (that's a 'beast' return!). Given its performance to date, the risk management team has decided to change the composition of the fund so that it is perfectly positively correlated to the NASDAQ 100 E-mini futures contracts (see contract specifications below). Specifically, they decide to enter into 2500 contracts of NASDAQ E-mini futures, so that in December (the end of the year), they can payout a 'beast' sized return to their members. Contract specifications for the NASDAQ 100 E-mini include: Contract Size Tick size Point Value Contract Month Last Trading Day Delivery Contract Specifications: NQZ22, CME $20 x Index Price 0.25 points 1 = $20 December* *(Note: This futures contract has maturities in March (H), June (M), September (U) and December (2), but information provided is for December only.) Third Friday of the contract month Cash Given the above, and that the closing NASDAQ 100 Futures (maturing December) on May 30th is 12960.50, how would you use these futures contracts to protect the return? In providing your answer, specify the return the investors will receive, and show that your strategy works if the NASDAQ E-mini Index at the end of December is (12970+ (D 10)) or (12950 (B * 10)). (12 marks) * It is May 30th, 2022 and you are the Vice President in charge of risk management for Beasties Fund Inc., a funds management company that promises 'beast' like profits (that means BIG!). One of your active funds, in Information Technology, has been performing extremely well throughout the year, starting at $500m and is now worth $600m (that's a 'beast' return!). Given its performance to date, the risk management team has decided to change the composition of the fund so that it is perfectly positively correlated to the NASDAQ 100 E-mini futures contracts (see contract specifications below). Specifically, they decide to enter into 2500 contracts of NASDAQ E-mini futures, so that in December (the end of the year), they can payout a 'beast' sized return to their members. Contract specifications for the NASDAQ 100 E-mini include: Contract Size Tick size Point Value Contract Month Last Trading Day Delivery Contract Specifications: NQZ22, CME $20 x Index Price 0.25 points 1 = $20 December* *(Note: This futures contract has maturities in March (H), June (M), September (U) and December (2), but information provided is for December only.) Third Friday of the contract month Cash Given the above, and that the closing NASDAQ 100 Futures (maturing December) on May 30th is 12960.50, how would you use these futures contracts to protect the return? In providing your answer, specify the return the investors will receive, and show that your strategy works if the NASDAQ E-mini Index at the end of December is (12970+ (D 10)) or (12950 (B * 10)). (12 marks) *
Expert Answer:
Answer rating: 100% (QA)
To protect the return of the Information Technology fund we can use the NASDAQ 100 Emini futures contracts to create a perfectly positively correlated ... View the full answer
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
Students also viewed these finance questions
-
Fifty-nine countries won gold medals in the 2016 Summer Olympics. The table lists them, along with the total number of gold medals each won. a) Try to make a display of these data. What problems do...
-
To review chapter content related to each set of exercises, refer to the indicated Learning Objective. Revising Messages: Clarity Break the following sentences into shorter ones; revise as necessary...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
just finished the business plan of his start-up company. According to the projections he carried-out, the initial investment is 1,500,000 SAR (assume that we are in the beginning of 2023), which will...
-
The cost accountant for Sun & Surf Apparel Shop has compiled the following information for last years operations: Administrative costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $...
-
A 1.60-g sample of a mixture of naphthalene (C 10 H 8 ) and anthracene (C 14 H 10 ) is dissolved in 20.0 g benzene (C 6 H 6 ). The freezing point of the solution is 2.81 C. What is the composition...
-
A hot-air balloon roughly spherical in shape has a volume of 70,000 \(\mathrm{ft}^{3}\) and a weight of \(500 \mathrm{lb}\) (including passengers, basket, balloon fabric, etc.). If the outside air...
-
Two automatic systems for dispensing maps are being compared by the state highway department. The accompanying breakeven chart of the comparison of these systems (System I vs System II) shows total...
-
What is the overall impact of adding the hammer to Tenalpina's product lines? How many hammers must be sold to "keep the company profits the same?"In other words, not decrease profits. Is purchasing...
-
Using lab 7 with a three-day lead time (all original values), we will analyze six different scenarios to determine which would be the best scenario based on the total cost. Scenario A - Min is 3,500...
-
Analyze the video presented on the link below. Also, please discuss or explain the video and relate it to personal finance. https://www.youtube.com/watch?v=nFY0HBkUm8o
-
How does the presence of fraud affect an innocent partys consent to a contract?
-
In selling a warehouse to A&B Enterprises, Ray does not disclose that the foundation was built on unstable pilings. A&B may later avoid the contract on the ground of a. misrepresentation. b. undue...
-
Adam persuades Chiya to contract for his companys services by telling her that his employees are the best and the brightest. Adams statement is a. duress. b. fraud. c. opinion. d. undue influence.
-
If a person makes a statement that they believe to be true, they cannot be held liable for misrepresentation. (True/False)
-
The essential feature of undue influence is that the party taken advantage of does not exercise free will. (True/False)
-
Consider the differential equation xdx-ydy=0 with the initial condition y(0) = 2. Approximate the value (up to 6 decimal places) of the solution at x =3 using Fourth Order Runge-Kutta Method with...
-
The following exercises are not grouped by type. Solve each equation. x610x -9
-
Kramer Corporation is considering two investment projects, each of which would require $50,000. Cost and cash flow data concerning the two projects are given below: The high-speed photocopier would...
-
Canyonland Boat Charter Service rents live-aboard houseboats for cruising on the lake that traverses most of the Glen Canyon National Recreation area in Southern Utah. The company bases its overhead...
-
Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on 8,000 estimated direct labor-hours and $171,200 of estimated total...
-
Make an energy diagram for gas B in Figure 20.4. Figure 20.4 When gases of different temperatures are placed in thermal contact, energy is transferred thermally from the hotter to the cooler gas...
-
Suppose you were to play the two film clips shown in Figure 20.7 backward. Would the resulting processes be possible? Figure 20.7 Quasistatic versus non-quasistatic expansion of a cylin- der...
-
(a) What are the SI units of \(Q\) ? (b) For the process depicted in Figure 20.2a, make an energy diagram for each of these systems: (i) water, pot, and flame; (ii) pot and flame; (iii) pot. Figure...
Study smarter with the SolutionInn App